MARKET WATCH: Crude breaks 7-session losing streak

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 20 -- After dropping almost 10% in the previous seven sessions, the front-month crude contract inched higher May 19 in the New York market on a “somewhat bullish” government report on US inventories and the strengthening of the euro.

“Gas prices, on the other hand, fell more than 4% after rallying around 10% the past 2 weeks. This drove energy stocks to underperform,” said analysts in the Houston office of Raymond James & Associates Inc.

Raymond James analysts said, “Falling back in line with their historical inverse relationship, crude oil has relinked with the US dollar over the last 3 weeks and has shown a negative correlation…. Prior to that, the dollar and crude gained ground together as indicators of a global recovery spurred on forecasts for oil demand while a flight to safety lifted the dollar. The positive correlation was largely based on the idea that European debt fears were specifically isolated to the PIGS countries [Portugal, Italy, Greece, and Spain], but debt contagion fears have since spread quickly across the continent as the crisis is now seen more as a deleveraging issue than just a currency issue.”

They said, “As we watch initial attempts at European austerity and the corresponding lack of job and demand growth, look for crude to follow its historical mantra of ‘dollar up, crude down.’”

US inventories
Meanwhile, the Energy Information Administration reported the injection of 76 bcf of natural gas into US underground storage in the week ended May 14. That raised the working gas in storage to 2.2 tcf, up 73 bcf from the comparable period last year and 308 bcf above the 5-year average.

EIA earlier said commercial US crude inventories increased by 200,000 bbl to 362.7 million bbl in the week ended May 14. Gasoline stocks were down 300,000 bbl to 221.8 million bbl. Distillate fuel inventories fell 1 million bbl to 152.8 million bbl (OGJ Online, May 19, 2010).

The EIA report “is showing another overall build of stocks, although the overall build was relatively small at 1.2 million bbl and most of the build was in ‘other products’ while the visible stocks (crude plus clean petroleum products) had a stock draw of 1.3 million bbl. The visible stock draws were, however, higher a year ago during the spring and that means that the level of visible stocks in the US remains well above the recent history,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

Jakob noted crude stocks in Cushing, Okla., continued to build “as expected,” and imports of Canadian crude into the Midwest “remain healthy” at 1.2 million b/d. “However, the demand side is also getting healthier in the Midwest with a pick up in crude oil refinery runs, which could cap some of the crude oil stock builds in that region,” he said.

“Stocks of crude oil [along] the US Gulf [Coast] are stable and have not been greatly reduced over the last few weeks, despite some probable stock transfers to Cushing,” Jakob said, “Stocks of gasoline had a marginal stock draw, and that leaves US gasoline stocks relatively flat so far in the spring compared [with] a seasonal stock draw and as well above the levels of recent years for the season.”

US distillates had a small draw, but levels remain above those of recent years. “Implied demand for distillates is relatively strong, and there we will have to wait also for the end of the month revisions to be able to split what is real US demand and what is demand for export,” he said.

Energy prices
The June contract for benchmark US sweet, light crudes traded at $67.90-71.43/bbl May 19 on the New York Mercantile Exchange before closing at $69.87/bbl, up 46¢ for the day. The July contract, however, dropped 22¢ to $72.48/bbl. Contracts for subsequent months also posted losses but remained in contango.

On the US spot market, West Texas Intermediate at Cushing was up 46¢ to $69.87/bbl. Heating oil for June delivery declined 1.63¢ to $1.95/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 2.79¢ to $2.02/gal.

The June natural gas contract fell 18.4¢ to $4.16/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 16.5¢ to $4.25/MMbtu.

In London, the July IPE contract for North Sea Brent crude was down 74¢ to $73.69/bbl. Gas oil for June dropped $20.50 to $617.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell $2.20 to $70.57/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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